Electricity: Taxes on Emission Liabilities. An Examination of the Economic Effectiveness of Polluter Pays Principles

Energy Policy, Volume 32, Issue 2, January 2004

Posted: 5 May 2021

See all articles by Dr. Akim M. Rahman Ph.D (USA)

Dr. Akim M. Rahman Ph.D (USA)

Canadian University of Bangladesh; Ohio State University (OSU) - College of Food, Agricultural & Environmental Science; Ohio State University

Clive A. Edwards

The Ohio State University

Date Written: January 2004

Abstract

In spite of the resolutions of Conference of Parties on Climate Change (COP7), policy practitioners in many countries are currently obligated to react to perceived domestic environmental damages. Like few other sectors, utilities, especially, coal-based electricity generation is often identified as a major source of emission. Since the generating companies and end-users have joint interests in profit maximization but may dichotomize in their activities, the policy practitioners are struggling in designing a unique domestic emission policy. Both law and economic theory suggest that companies should be made to pay the costs of the pollution through assignment and enforcement of full liability—Polluter Pays Principles—and then pass these incurred costs on to end-users by charging higher rates per kWh of electricity usage. Questioning this full liability in designing emission policy with implicit weighting of welfare gains and losses to society as a whole, a three-group (consumers, producers and victims of the emission) supply–demand model is developed, and the net welfare effects are analyzed. With plausible parameter values, our analysis shows that the intermediate liabilities over a full or zero liability are preferable on both economic efficiency and equity grounds. However, the model is quite sensitive to the parameter values.

Keywords: Coal combustion, Electricity generation, Global warming

JEL Classification: D11, D12

Suggested Citation

Rahman Ph.D (USA), Akim M. and Edwards, Clive A., Electricity: Taxes on Emission Liabilities. An Examination of the Economic Effectiveness of Polluter Pays Principles (January 2004). Energy Policy, Volume 32, Issue 2, January 2004, Available at SSRN: https://ssrn.com/abstract=3837760

Akim M. Rahman Ph.D (USA) (Contact Author)

Canadian University of Bangladesh ( email )

Canadian University of Bangladesh
Banani, 1213
Bangladesh
+880 1783339956 (Phone)

HOME PAGE: http://www.cub.edu.bd

Ohio State University (OSU) - College of Food, Agricultural & Environmental Science ( email )

1735 Neil Avenue
Room #103
Columbus, OH 43210
United States
(614) 466-2870 (Phone)
(614) 572-8353 (Fax)

Ohio State University ( email )

77 S. High Street 27th Floor
Office of Strategic Research
Columbus, OH 43215
United States
614-466-4151 (Phone)
614-466-9697 (Fax)

Clive A. Edwards

The Ohio State University ( email )

1735 Neil Avenue
RM# 103
Columbus, OH 43210
United States

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